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Matt Levine

Warren Buffett Funds Global Donut-Burger Behemoth

Burger King is doing an immaculate inversion, avoiding inversion penalties both past and future.

Burger King Worldwide and Tim Hortons announced their actual deal this morning, and it is a disappointment, insofar as "each brand will be managed independently," so there will be no donut burgers, or at least that's the official line for now. A new company will be formed, which does not currently have an official name but I will push on in assuming that it's New Burger Tim, and it will be based in Canada, to profit from Canada's lower and more territorial tax system. New Burger Tim will acquire Tim Hortons for a mix of cash and stock, and will acquire Burger King for a mix of stock and strangeness.

First, though, the cash: Of the $12 billion in financing for the deal, $3 billion will come from Warren Buffett's investment in preferred stock of Burger Tim. My toy model for 3G Capital, the Brazilian private equity firm beloved of Buffett that owns most of Burger King, is that it can do leveraged buyouts that are more leveraged than anyone else's, because the extra leverage comes from Warren Buffett. So on today's conference call executives said that Burger Tim will be have a leverage ratio (measured as the ratio of bank loans and bonds to earnings before interest, taxes, depreciation and amortization) of roughly 5 times, more or less in line with its franchise-restaurant peers. But it will be 7 times levered through the preferred stock, which only sort of counts as leverage.